Kelly Avison joined Avison Young in 1990, shortly after the firm’s inception. Over the course of his 35-year career, he has seen every asset class have its moment in the spotlight — and the shadows.
As principal within the organization and senior vice president of the capital-markets group, he keeps his finger on the pulse of all types of properties, as well as development land and distressed assets.
Through current tariff talks and economic uncertainty, Avison maintains a level-headed perspective that comes only with time and experience.
He spoke to Green Street News about how today’s market woes compare with the crisis of the 1990s, how investors are responding and where he sees momentum in the year ahead.
“I’m bullish on the office market slowly turning around”
You’ve been at Avison Young for over 30 years. How do the uncertainties of the current market compare to what we went through in the ‘90s?
There are some similarities to the ‘90s, but to be blunt, the ‘90s were horrible. The tagline was “Survive till ’95.” And we started the company in March of ’89 or, as my dad [Ted Avison] and Robin [White] would say, “two minutes before the crash.”
Everything was bad in the ‘90s in terms of the commercial real estate market. You had double-digit vacancy rates across different sectors. That’s when the term “negative net effective rent” was coined. Office was bad. Industrial was bad. Retail was bad. And it was deep and long, and it took on a life of its own for several years. We saw a lot of companies go bankrupt at that time — some big players.
“Today, the situation we’re in is not that bad”
Today, the situation we’re in is not that bad. Yes, we have some challenges. There are some sectors that are struggling, like the office market. But there is bifurcation. The trophy towers are holding their own, and those landlords are holding on to their rents. The residential development market is struggling, but that’s a function of rising interest rates and skyrocketing construction costs, which are beyond the control of any developer.
The sector that’s holding its own right now is the industrial market. It didn’t miss a beat during Covid. It got stronger because everybody was ordering everything online. I would say the froth and the urgency has eased, but it’s still a fairly strong sector. We’re still dealing with single-digit vacancy rates, which is a landlord’s market, but the urgency on the tenant side and the buyer side has eased off a bit. So, we’re seeing a little bit more equilibrium in that marketplace.
That’s a great perspective. You touched on a couple asset classes there, but is there one that you’re particularly bullish on for the year ahead?
I think industrial is going to continue doing well this year, but, again, the froth is off. Bear in mind, net rental rates have skyrocketed on tenants. When they go to renew, there’s an extra digit on their net rent. That was a shock for a lot of tenants. But it is still going to be a fairly stable, good asset class.
The multi-res apartment market is going to be strong. For 2024, the total sales volumes that we track were down about 30% year over year — that’s for all commercial properties, office, industrial, land — all of it. But the multi-res sector was up year over year by almost 75%. That asset class is still in pretty strong demand. And it stands to reason — they have strong cashflows in the apartment sector, they’ve had strong rental growth, and they’re benefiting from issues in the condo market.
I’m bullish on the office market slowly turning around, too. In the pandemic, tenants were making these long-term decisions about work-from-home based on that one point in time. Now, I think a lot of people are realizing that maybe they had a bit of a knee-jerk reaction, and that that one point in time shouldn’t be driving the next 20 years’ worth of a company’s decisions. We’re seeing that now with some major companies telling their employees to get back to the office. But flexibility is key going forward.
On the flip side, you work on a lot of distress sales. Do you expect more of those in the coming year?
I’ve been working on distress sales for banks and receivers since the ‘90s, and I’ve been busier than ever now. There will be more coming. I’m sure there’ll be more infill development sites coming back. Lenders are sitting on problematic loans that they have to move off their books eventually.
“I’ve been working on distress sales for banks and receivers since the ‘90s, and I’ve been busier than ever now”
So, there will be some more distress sales, but that’s the nature of a down economy. My gut tells me we’re through the worst of it, but there’s still uncertainty that’s looming, and that’s beyond everyone’s control. And that’s what drives a lot of investors nuts. If they can’t control it, then they’re going to sit on the sidelines until they can figure out the lay of the land.
Do you expect that investors will be waiting on the sidelines for the foreseeable future?
I am a bit of an optimist in that regard. I’ve seen the good, the bad and the ugly in the real estate cycles. It’ll be 35 years this year that I’ve been in this industry, so I’ve seen how bad it can get, and we’re nowhere near that.
I would say in the last quarter of 2024 I was having better discussions with investors who’ve been sitting on the sidelines for 12 to 18 months who are saying they’re ready to start. They’re looking more. They’re underwriting more. It doesn’t necessarily mean they’re ready to transact, but they want to be ready to deploy their capital when they feel the market timing is right. The problem is, everyone wants to transact at the absolute bottom of the market, but you can’t time it.
How are current political and economic uncertainties affecting investors?
Investors hate uncertainty, and uncertainty comes in many forms. For the most part, I’d say over the last 12 to 24 months we’ve had a very bumpy ride in terms of interest rates and costs going through the roof on all fronts.
Investors typically want a certain level of confidence or predictability before they are willing to commit to deploying their capital. So, we say they’ve been sitting on the sidelines, but, really, they’ve been sitting in the bleachers. They were watching the show from a distance. Now they’ve moved to the sidelines, and now some are starting to look again and starting to underwrite properties again. That, to me, is positive momentum and positive news compared to where we were 12 to 18 months ago.
“We say [investors have] been sitting on the sidelines, but, really, they’ve been sitting in the bleachers”
The political climate, no one can control that. We’ve got political uncertainty at home as well as in the U.S. We effectively have no one manning the ship — federally, here — until we have a new election in the spring. South of the border, we’ve got a looming trade war with the U.S.
But we’re cautiously optimistic that cooler heads will prevail, and mindful minds will come forward and say, “Let’s work together, not against each other.” Because if you’re hurting your largest trading partner, it goes both ways. So, we’re going to closely monitor that situation just to see what the impact has once the dust settles.
Hopefully that momentum will persist despite the proverbial dust.
There’s a lot of money sitting on the sidelines. We’re talking in the billions. As much as investors won’t want to deploy their capital until they know the timing’s right, sitting on cash doesn’t do much for them. If they stuck the money into a bond or a short-term investment vehicle, it’s not earning the returns they want. So, at some point in time, they need to transact and put that money out into the marketplace and have it work for them.
So, I’m seeing better momentum so far this year than we did last year, guaranteed. I think by the second half of the year the dust storm will settle a little bit, and hopefully when we’re sticking our heads up we can see clearly and it’s not a bad game of whack-a-mole.
What are some of the other factors you expect will influence investors in 2025?
I would say further interest-rate cuts will influence them. We’re not expecting more of the bigger cuts that we had last year. We think further cuts will be more gradual, maybe more spread out. But the consensus is that rates will come down more, which gives investors and borrowers a little more confidence. That’s another reason why investors are sitting on the sidelines — they’re waiting for more rate cuts.
The general sentiment I get from the calls that I have with investors is that they’re getting sick and tired of sitting on the sidelines. Like I said, they’ve come down from the bleachers, they’re now sitting on the sidelines, and they’re getting ready to say, “Put me in, coach.”
